NetNews Usenet Archive 1992 #27/NN_1992_27.iso/spool/misc/invest/13962

Text File | 1992-11-19 | 3.2 KB | 78 lines

Newsgroups: misc.invest
Path: sparky!uunet!zaphod.mps.ohio-state.edu!rpi!newsserver.pixel.kodak.com!psinntp!psinntp!intrepid!gary
From: [e-mail] (Gary Funck)
Subject: Re: C-SPAN & 1929 !
Organization: Intrepid Technology, Inc.
Date: Wed, 18 Nov 1992 15:51:27 GMT
Message-ID: <[e-mail]>
References: <[e-mail]> <[e-mail]> <[e-mail]>
Lines: 67

In article <[e-mail]> [e-mail] (Larry Watanabe) writes:
=[e-mail] (Gary Funck) writes:
=
=>In article <[e-mail]> [e-mail] (Maurice E. Suhre) writes:
=>>In article <[e-mail]> [e-mail] (Gary Funck) writes:
=>>>
=>>It isn't obvious to me how the taxpayer "picks up the tab" for lower
=>>interest rates.
=>>
=
=>The relationship is indirect, and arguable.  My point was that if we support
=>an economic system which keeps weak businesses and banks afloat, we hurt
=>ourselves:
=
=>(1) weak businesses generally block progress and job growth
=>(2) weak businesses cannot compete as well in a global market
=
=True, we don't want weak businesses around, but only if we
=have something better to replace them.
=

Agreed.  This is all a matter of degree.  My point was that if the
govt. becomes too heavily involved in manipulating monetary policy
and in subsidizing big busineeses that are just hanging on,
what we have is a different form of transfer payment.

=But there is no reason to penalize our companies by having
=high interest rates, which adversely affects strong companies as well
=as weak ones.
=
=High interest rates are good because they weed out weak companies?
=Why not also slap an extra 70% tax on all corporations, which would
=also help kill off the weak companies?
=

Not my proposal.  I'm just pointing out that when interest rates are
lowered, the burden shifts from the debtor to the creditor.  In the
US, the creditor is the working taxpayer and the debtor is a corporation
or institution (in general).

=>(3) lower interest rates will lower the yield on conservative, long-term
=>investments.
=
=>This forces individuals to take on higher risk, or accept
=>a lower level of real income.  As the TV economists noted, lower real income
=>decreases tax revenues, which raises govt. debt.  Higher risk investing
=>encourages speculation (not usually in a productive sector), which damages
=>the stability of our financial markets.
=
=Higher interest rates are more damaging than low ones, to the market.
=If interest rates were higher, it would
=make lower-risk investments like bonds/treasuries more attractive
=relative to securities.

My point exactly.  Encouraging lower rate investments (eg, bonds)
that develop the "infrastructure" is not all that bad.  The stock
market is already overvalued, by most accounts.  If money keeps
pouring into the market, we'll eventually have to label it as
speculative.  If speculative growth continues, a correction is due.
For the retiree who has been "forced" into equity mutual funds by low
interest rates, this correction will be quite harmful.

   - Gary
--
| Gary Funck              [e-mail]  [uunet!uupsi!intrepid!gary]
| Intrepid Technology Inc., Mountain View CA [phone]
--